+91 20 26613832 / 26613855 wiseinfo@wisein.org

Solar Power for Farm Sector

The Maharashtra Electricity Regulatory Commission (MERC) has granted approval to the Maharashtra State Electricity Distribution Company (MSEDCL) to proceed with a competitive bidding process for the procurement of 7,000 MW of solar power as part of the Mukhyamantri Saur Krishi Vahini Yojana (MSKVY 2.0) initiative. This initiative aims to address the increasing demand in the agricultural sector. MERC has also given the green light to the majority of the 34 requested amendments to be incorporated into the request for selection (RfS) document and the draft power purchase agreement (PPA) submitted by MSEDCL.


MSEDCL submitted a request for approval to initiate competitive bidding, facilitated by MSEB Solar Agro Power (MSAPL), to acquire 7,000 MW of solar power. MSAPL, a wholly owned subsidiary of MSEB Holding Company, serves as the nodal agency. MSAPL established eight special purpose vehicles (SPVs) and identified 2,731 substations across Maharashtra. The procurement plan involves phased bidding for different districts, with the first 4,000 MW phase targeted for April 2025. MSEDCL seeks deviations from standard bidding guidelines for long-term solar power procurement. The second phase of the MSKVY 2.0 initiative aims to enhance power quality, lower costs, reduce reliance on conventional sources, and meet renewable purchase obligations (RPO) using decentralized solar power. To replace nighttime conventional power with daytime solar supply for agricultural needs, considering an average sector demand of 14,000 MW, MSEDCL looks to reduce dependency on Koyna hydroelectric power due to water table constraints. With existing contracts covering 13,465 MW, the proposed MSKVY 2.0 solar procurement can fill potential RPO gaps. MSEDCL plans to utilize a mix of short and long-term power tenders for RPO targets. The strategy involves various amendments to bidding documents, encompassing capacity utilization factor (CUF) and compensation, excess generation, right of first refusal, deemed generation compensation, grid unavailability compensation, and MERC-mediated dispute resolution. Additionally, MSEDCL seeks to remove an insurance-related clause present in KUSUM PPA or MNRE Guidelines that pertains to economically and technically unviable scenarios caused by force majeure events.

As per the original clause, if insurance providers compensated for a “complete loss” or similar circumstances arising from these events, the DISCOM had the right to request reimbursement from the insurance, up to the DISCOM’s unpaid charges owed to the renewable power producer. Nonetheless, this provision has been removed from the MSKVY 2.0 PPA. This agreement pertains to projects entirely owned and managed by the SPV, with no DISCOM or RPG involvement in this context. As the SPV operates the project under a ‘Build Own Operate’ (BOO) model, the responsibility for insurance claims and settlements solely lies with the SPV. Consequently, the clause concerning insurance claims tied to unpaid DISCOM charges is not relevant within this PPA, warranting its removal. This adjustment brings the PPA in line with the new ownership structure and operational framework of the MSKVY 2.0 Program.

In its supplementary submission, MSEDCL outlined the following points:

Cluster Size: MSEDCL suggests a minimum cluster size of 250 MW for MSKVY 2.0. The ultimate determination of the cluster size is made after a comprehensive evaluation of various factors at the designated cluster locations:

Substation Capacity: The capacity of existing substations in the specified regions constrains the cluster size. The substations assigned to the clusters have been identified.

Land Availability: The availability of government-owned and private land influences the ultimate cluster size. While prioritizing government-owned land is the goal, private land might also be necessary.

Commission’s Analysis

The Commission observed that agricultural feeders provide daytime energy on a rotating basis, with half of them supplying power during the day and the rest at night. As the agricultural sector’s average demand reaches around 14,000 MW, daytime consumption surpasses nighttime demand. This validates the planned 7,000 MW capacity to accommodate the extra daytime load. MSEDCL has also emphasized a deficiency in its Solar Renewable Purchase Obligation (RPO) targets. To bridge this gap and fulfill future RPO obligations, the agency aims to procure solar energy. The MSKVY 2.0 initiative is projected to be operational by December 2025, aligning with new RPO trajectories. The Ministry of Power has introduced long-term RPO and energy storage trajectories until FY 2029-30, indicating a rising trend in “Other RPO,” inclusive of solar. This trend exceeds the combined Wind+Solar RPO of 25% for FY 2024-25, supporting the proposed procurement’s justification. MSEDCL has developed scenarios displaying potential savings in power purchase costs. The analysis anticipates net savings of 0.11 to 0.09 per kWh for FY 2025-26 and 0.15 to 0.13 per kWh for FY 2026-27. This procurement would enable MSEDCL to reduce reliance on the Koyna Hydro project for base load needs, potentially reserving it for peak demands and emergencies. Considering these factors, the Commission granted approval to MSEDCL’s proposal.

In line with the guidelines released by the Ministry of New and Renewable Energy (MNRE) in July 2023, the concept of a ‘State Nodal Agency’ has been acknowledged. Given this accord, the Commission has granted approval to MSAPL for overseeing the bidding process and other nodal agency responsibilities for MSKVY 2.0. This development is also in accordance with the Commission’s earlier suggestion to establish an agriculture electricity supply company. The Commission has assessed the 34 deviations requested by MSEDCL from competitive bidding guidelines for MSKVY 2.0. These deviations include modifications, additions, and removals spanning various clauses within the bidding documents.

Operational and Performance Deviations:

MSEDCL’s request to extend the commercial operation date from 9 to 12 months after the PPA date is justified due to the SPV-driven model. Allowing a 15% CUF for specific units within the project, as long as the total project CUF remains at 19% annually, is reasonable. Increasing the penalty for CUF shortfall to 1.5 times the PPA tariff ensures performance. Transparent formulas for deemed generation compensation and netting auxiliary/start-up power with generated energy support project implementation. Deviations for DC oversizing, repowering, and early commissioning incentives encourage better design and timely completion.

Billing Deviations:

Shortening payment timelines to SPVs and releasing 80% of disputed bills under protest align with Ministry of Power Rules, enhancing payment efficiency.

Procedural and Contractual Deviations:

For PPA extension, projects on public land can exceed 25 years, requiring bid document modification. Linking financial closure to PPA date, not Letter of Award, matches project progress. Accepted deviations enhance clarity, efficiency, and execution. Some clause clarifications and modifications are advised. MERC approves most deviations as they fit MSKVY 2.0 specifics, improving project performance and clarity. Strict timelines are directed for activity prevention. MSEDCL’s proposed CFA claiming should be transparent, specifying eligible substations and offering a single project tariff with CFA-related discounts. Clusters can use a Green Shoe Option for excluded substations, allowing additional capacity purchase at the discovered tariff. RfS and draft PPA with deviations are approved. Post-bidding, a separate petition is needed for tariff adoption. In May, MSEDCL’s 150 MW solar power procurement at ₹3.3 (~$0.040)/kWh was approved.

Source: https://merc.gov.in/wp-content/uploads/2023/08/Order-164-of-2023-1.pdf